Accounting capstone stockholders equity

1. Should preferred stock be recognized as a liability as a liabiity, or should it be considered equity? Defend your position.2. Consider that under International Financial Reporting Standard (IFRS), preferred stock is often reported as debt with the dividends reported in the income statement as int...

Jan 23 2011 04:19 AM

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Mark B
answered on January 23, 2011

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1. preferred stock also called preferred shares, preference shares or simply preferred,is a special equity security that has properties of both an equity and a debt instrument and is generally considered a hybrid instrument . It is senior to common stock and subordinate to bonds. Preferred stock usually carries no voting rights, may carry dividends, may have priority over common stock in payment of dividends and upon liquidation. 2.Under IFRS, preferred shares must be treated as debt rather than equity, if redemption is beyond the control of the company or if dividends must be paid on a periodic basis over the life of the security. A company 's capacity to pay such dividends depends in...

turn, upon its having sufficient retained earnings or distributable reserves. Because the use of fair value accounting is more widespread under IFRS. Such reserves are often more volatile and harder to forecast. This can constrain a company's capacity to pay dividends and under some circumstanes the amounts it can borrow. 3.Preference shares issued by the company are classified as equity as sthey are perpetual and redeemable only at the ption of the company.

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